Payment Gateways: The Powerhouse Driving India's E-Commerce Surge

A payment gateway is essentially the bridge that connects the consumer to the merchant's bank, ensuring that online payments are processed quickly, securely and reliably. Here are the key functions that payment gateways serve in India’s booming e-commerce sector:

• Ensuring Secure Transactions: Security remains a significant concern for online shoppers. According to Voice of Customer Survey 2024 by PwC, 82% of Indian consumers stated that protection of their personal data is one of the most crucial factors to earn their trust. Payment gateways address concerns over the safety of customers' transactions concerns by offering robust security features, such as encryption, two-factor authentication (two/multi-factor authentication) and tokenization, ensuring that customers remain protected from fraud and data breaches. Payment gateways in India also adhere to the RBI's guidelines on Regulation of Payment Aggregators and Payment Gateways, which also covers the security, fraud prevention and risk management framework. Adherence to such standards enhances the security of transactions.

• Driving Convenience and Accessibility: The growth of digital payments has been a game changer in India, particularly for the more than 350 million Indians who are using Unified Payments Interface for their transactions. The availability of multiple payment options like UPI, mobile wallets, net banking and debit/credit cards makes online shopping more accessible to a broader consumer base. In fact, UPI alone recorded transactions worth over Rs 246 trillion in 2024, becoming one of the world's most widely used payment systems. Integration with payment gateways has allowed Indian e-commerce platforms to offer a variety of payment methods, catering to different consumer preferences. The adoption of UPI-based payments in the e-commerce space has been particularly significant. Leading E-commerce platforms have integrated UPI as a primary payment method, enabling consumers to make instant, secure payments directly from their bank accounts. E-commerce has been a major growth driver of the digital payment ecosystem in India.

• Fostering Financial Inclusion: One of the biggest challenges in India's e-commerce ecosystem was catering to a large unbanked population. However, payment gateways have helped bridge this gap by offering alternative payment methods, such as mobile wallets and UPI. Economic Survey 2024-25 notes that the widespread adoption of UPI proves that a lack of financial literacy did not hinder its success; rather, the necessity to utilise UPI encouraged the informal economy to open bank accounts. This also suggested that financial inclusion can indeed precede financial literacy. Further, these innovations have made digital payments more accessible, particularly in rural and semi-urban areas. For example, leading third-party application providers have witnessed significant growth in smaller towns, where people are using UPI/mobile wallets to make small-value payments to large-ticket purchases.

• Optimising User Experience: In e-commerce, a smooth checkout process is key to reducing cart abandonment. Payment gateways play a critical role in ensuring that the user experience is seamless, minimising friction and making the payment process as quick and efficient as possible. Features like one-click payment and saved payment details allow customers to purchase items without re-entering payment information every time. As per a report by PYMNTS Intelligence and Adobe, the availability of preferred payment methods is a critical factor in consumers' online shopping decisions. According to the report, 70% of consumers consider the availability of their preferred payment method to be very or extremely influential when choosing an online store. This preference appears to be a driver of cart abandonment rates across online platforms. The flexibility in payment options can not only reduce cart abandonment but is also crucial to enhancing customer satisfaction and driving repeat business.

• Enabling Cross-Border E-commerce: As Indian consumers increasingly look beyond national borders to purchase products from international brands, payment gateways are facilitating cross-border transactions. According to a 2024 EY report, Indian e-commerce exports are expected to reach $200-300 billion by 2030. Payment gateways that support multi-currency transactions and offer competitive exchange rates are enabling Indian businesses to tap into global markets, while international companies can easily cater to Indian consumers. Some of the leading e-commerce platforms have integrated payment gateway solutions that allow consumers to make payments in their local currency, making cross-border e-commerce seamless for both buyers and sellers.